Water customer Eric Krogius used to live in San Juan Capistrano – he wants his money back – and So Do We – Let’s Sue City Hall

San Juan Capistrano, California –

Victorious San Juan Capistrano water users want a refund

Water customer Eric Krogius used to live in San Juan Capistrano, and he wants his money back.

The homeowner and securities specialist paid huge water bills under the steep tiers recently declared illegal by the 4th District Court of Appeal, and he recently filed a claim in Orange County Superior Court to try to recoup the thousands he once thought were gone for good.

“I think it’s got the makings of a great class action,” Krogius said.

But San Juan Capistrano city officials aren’t ready to talk refunds. The City Council – now dominated by four people who support the lawsuit, including one of the men who sued – has yet to decide whether to appeal the April 20 ruling to the Supreme Court. It has until June 1 to do so. Mayor Derek Reeve expects a decision “probably this week.” The Council is scheduled to consider the case in a closed session today.

“If the council does not appeal and thus accepts the judgment, I anticipate some form of refund policy will be developed and announced soon thereafter,” Reeve wrote in an email to the Register.

That would open the door for a flood of requests – first in San Juan, and later in other agencies that can’t prove a leak-tight link between what it costs to provide water and what they charge for it.

“Could that create chaos? It certainly could,” said Ryan Cogdill, an attorney for the Howard Jarvis Taxpayers Association, which backed the challenge to San Juan’s rates. “That’s a risk agencies run when they try to impose costs they can’t justify.”

The city of Fullerton knows this story well.

More than 40 years ago, Fullerton tacked a 10 percent “in lieu franchise fee” onto water bills. That raised millions over the decades – more than $27 million since 1997, according to city figures – but the fee wasn’t tied to any specific cost of providing service. That ran afoul of Proposition 218, the Howard Jarvis Taxpayers Association warned, threatening to haul Fullerton into court in 2012.

Fullerton didn’t fight the way San Juan did. Instead, Fullerton essentially acknowledged that the 10 percent figure was pulled from a hat and hired a consultant to do a full analysis of water utility operations. It calculated how much it costs for everything from office space, electricity and personnel to operating stations, pumps and wells.

In the end, Fullerton wound up reducing the fee and refunding $3.3 million to customers. That’s a fraction of the excess it collected over the decades, but the statute of limitations only left Fullerton on the hook for three years’ worth of repayment.

San Juan – and every water agency that can’t clearly demonstrate the link between costs and rates – could find itself backed into a similar corner.

“It does seems to be the case that this ruling would mean refunds,” said Frank Wolak, director of Stanford University’s Program on Energy and Sustainable Development. “It’s unfortunate that so few judges understand basic economics.”

And Reeve’s statement indicates the city is preparing for refunds. While no decision on whether to appeal has been announced, city officials have taken a couple of steps that indicate they’re not interested in pursing the case further.

The council recently ended its contract with Michael Colantuono, the lawyer who’d fought the lawsuit since it was filed in August 2013, and directed the city’s contracted law firm, Best Best & Krieger, to handle the case as part of its standard litigation duties. And city attorneys sent a letter, saying they wanted to negotiate a settlement, to the lawyers who sued.

But who would be eligible and for how big a refund is unclear.

A claim filed last year by Newport Beach lawyer Gerald Klein estimated total refunds of $20 million to $30 million. Klein said at the time that the claim was the first step in a class-action lawsuit, but he hasn’t sued yet and recently declined to speak to a reporter about the case. Councilman John Perry, who sued with fellow Capistrano resident Jim Reardon, said he believes class-action firms don’t want the case because they can’t make enough money from it.

In court documents filed after the 2013 Superior Court ruling, Reardon and Perry’s lawyer, Ben Benumof, noted that the money owed to him – a Superior Court judge calculated it at $237,242 – exceeds the amount of money expected to be refunded to San Juan Capistrano ratepayers: about $150 per household for three years, which he called “a small return easily eclipsed by the attorney’s fees needed to prosecute the case on CTA’s behalf.”

The city has yet to pay Benumof anything. The City Council is to consider today how much to give him, Perry said.

Krogius calculated his request of $7,511.70 by subtracting the difference between the top tiers he paid – $11.67 – and the base rate that was the only non-tiered rate in place – $3.18.

But the court emphasized that tiers are still legal; it’s arbitrary tiers that are problematic.

San Juan Capistrano readjusted its rates in 2014 to greatly reduce the tiers, but they’re still in place – the top tier charge was slashed from $11.67 to $5.15; the bottom tier rose from $3.18 to $3.41. So theoretically, heavy water consumers like Krogius could still be charged more than the base rate. Just not as much as San Juan Capistrano originally charged.

And the court hasn’t said anything about refunds.

“It’s too amorphous,” said Larry Kramer, who served on the San Juan Capistrano City Council for four years before losing in the November election. “I couldn’t get an answer out of the city as to how it might work.”

There is, however, a checkmate possible in this game.

“Prop. 218 limits local government, not the state,” said Thomas J. Campbell, dean of Chapman University’s Fowler School of Law. “The Legislature could simply pass its own tiered-pricing law, trumping local units. The result would be a short-lived rebate to the plaintiffs, but a restoration of tiered pricing. It would not surprise me if Gov. Brown attempted such a step as part of his drought-relief package.”

Such a move would have to be uniform for all water agencies, he said – something like a surcharge on usage exceeding a predetermined level, with proceeds dedicated to a rebate for low- water users. That would avoid construing the state action as a tax increase, Campbell said.

Meanwhile, Krogius is scheduled to appear in court July 13 for his claim against San Juan Capistrano.

He decided to demand a refund after he and his wife, Kathleen, were turned down by City Hall staff. They’d paid huge water bills – sometimes upward of $800 a month – for their big home and lawn in San Juan Capistrano.

“We just thought it was the status quo and we had to live with it. And we did live with it,” Kathleen said.

They lived there for 16 years before moving to Cota de Caza earlier this year. They still recall receiving the first bill under the now illegal tiers, which were approved in February 2010.

“We couldn’t believe it when I got the first bill,” Kathleen said. “I thought it was a typo.”